Returns On Capital At Carasso Motors (TLV:CRSM) Have Stalled

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Carasso Motors (TLV:CRSM) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Carasso Motors is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.15 = ₪505m ÷ (₪5.1b - ₪1.8b) (Based on the trailing twelve months to March 2022).

Therefore, Carasso Motors has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 10% generated by the Specialty Retail industry.

Check out our latest analysis for Carasso Motors

Historical performance is a great place to start when researching a stock so above you can see the gauge for Carasso Motors' ROCE against it's prior returns. If you're interested in investigating Carasso Motors' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Carasso Motors' ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 15% for the last five years, and the capital employed within the business has risen 34% in that time. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

The main thing to remember is that Carasso Motors has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 13% over the last five years, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Like most companies, Carasso Motors does come with some risks, and we've found 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.